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Legislative Update: Tax credits, College Illinois, tax cuts, Pell grants and research funding

December 19, 2011

In Springfield…

Lori Clark

Lori Clark

The General Assembly completed its work for this calendar year last week with the passage of two pieces of legislation.  The first (Senate Bill 397) was a $330 million package of business tax breaks, primarily directed to retain the Chicago Mercantile Exchange and Sears in Illinois.  It also included the reinstatement of the Research and Development Tax Credit, the reinstatement of the Net Operating Loss Deduction to allow businesses to carry forward their losses, and an increase in the estate tax exemption from $2 million to $4 million over a two year period.  Governor Quinn already has signed this bill into law.  The second bill (Senate Bill 400) involves increasing the Earned Income Tax Credit to provide tax relief to low-income working families, worth an estimated $110 million.  The General Assembly will reconvene on January 31, 2012 to begin its Spring Session.  The Governor’s State of the State message is scheduled for February 1, 2012.

Last week also saw the release of the latest report on the financial difficulties of the College Illinois! plan.  As of March, 2011, the program was reporting a deficit of over $559 million, an increase of $28 million since June, 2010.  The Illinois Student Assistance Commission (ISAC, which administers the program) stopped selling contracts under College Illinois! on September 30, 2011.  At this time, more than 30,000 Illinois families hold contracts in the program, with over $1 billion invested.  However, the program has a 30% shortfall.  The College Illinois! program does not offer any guarantees of state funding to address the shortfall.  ISAC has seen a change in leadership in recent months, and it intends to give the Governor and General Assembly a comprehensive set of recommendations on how to fix the program by early next year.  It is widely rumored that universities may be expected to assume some level of liability to help “fix” the problem.  We will monitor any new developments closely.

In Washington, D.C. …

While it appeared as though there would be a year-end bi-partisan compromise on the remainder of the federal Fiscal Year 2012 budget, there has been a last-minute glitch interjected by the House Republicans.  The conflict is over the two-month extension in the payroll tax cut (worth approximately $1,000/worker), unemployment benefits and Medicare reimbursement rates for doctors.  The Senate bill has proposed increasing certain home-mortgage fees to pay for this two-month extension.  The bill also includes a Republican-backed provision that approves the building of a Canada-to-Texas oil pipeline.  The House is scheduled to vote on this bill on December 19, and it is likely that it will fail.  If that happens, House leaders could seek a formal conference to resolve differences between the House and Senate or bring up an entirely new version of the bill.

According to the bi-partisan compromise (H.R. 3671), Pell grants would preserve the maximum award at $5,550, however, there would be changes to the program’s eligibility criteria, making as many as 100,000 of its 9 million recipients ineligible.  The grants could be used for a maximum of 12 semesters, down from 18, a change that would affect approximately 62,000 beneficiaries; this would take effect on July 1, 2012.    The limit applies to any semesters a student is enrolled, rather than only those in which he/she attended full-time.  In addition, the maximum amount families could earn and automatically contribute nothing toward an undergraduate education would decrease from $30,000 to $23,000.  Students without a high school diploma or the equivalent also would be barred from receiving Pell grants, so students would no longer qualify by taking the “ability to benefit” tests.  To help pay for the program, the grace period on subsidized undergraduate direct loans, when the government pays the interest for six months after a student graduates or leaves college, would be eliminated for loans made between July 1, 2012 and July 1, 2014.  The Federal Work Study and the Supplemental Educational Opportunity Grants programs would undergo a mandatory across-the-board cut of 0.189 percent over the 2011 funding levels.  Even with the cut, the TRIO program for college readiness would get a funding increase, from $827 million to $840 million.  Funding programs for international education and foreign language in the Education Department would be reduced by $2 million, from $76 million to $74 million.  No information is yet available on funding for international study programs operated by the State Department.

The compromise bill also would maintain funding for research.  The National Institutes of Health would increase by one percent, to $30.7 billion.  In addition, the Department of Energy’s Office of Science also would be increased by one percent, to $4.9 billion.

Last week, the Chairs of the House Science, Space and Technology Committee, the House Small Business Committee, and the Technology and Innovation Subcommittee announced a bi-partisan deal to reauthorize the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.  These programs were set to expire on December 16, 2011, but a compromise deal was successfully negotiated with the Senate, allowing a long-term reauthorization to be included as an amendment to the National Defense Authorization Act.  This agreement includes:

Reauthorization of SBIR and STTR programs for six years;
Increases the SBIR program allocation from 2.5 to 3.2 percent and the STTR allocation from .3 to .45 percent, giving small business an increased role in the federal Research and Development enterprise, while preserving the majority of federal R&D funding for basic research;
Allows for participation among small businesses with majority venture capital and private capital support in the program, increasing competition;
Helps participating agencies combat waste, fraud, and abuse within the SBIR and STTR programs, protecting taxpayers money;
Tasks the National Research Council with evaluating the effectiveness of both the SBIR and STTR programs; and,
Enables participating federal agencies to utilize three percent of program funds to improve administration of the program, combat waste, fraud, and abuse, and conduct outreach to under-represented businesses.

I wish you all a very happy holiday season and a great New Year!